1. A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:
a) reduce output.
b) increase output.
c) shut down.
d) do nothing; the firm is already maximizing profits.
2. Zoe's Bakery operates in a perfectly competitive industry. The variable costs at Zoe's Bakery increase, so all of the cost curves (with the exception of fixed cost) shift leftward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increases, Zoe's Bakery will ________ its price and ________ its level of production.
a) raise; increase
b) decrease; increase
c) raise; decrease
d) do nothing to; decrease
3. The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, the marginal cost is $30, and the average variable cost is $30. Our firm should:
a) raise the price of guidebooks, because the firm is losing money.
b) keep output the same, because the firm is producing at minimum average variable cost.
c) shut down because the firm is losing money.
d) produce more guidebooks, because the next guidebook produced increases profit by $5.
1. A competitive firm operating in the short run is producing at the output level at which ATC is at a minimum. If ATC = $8 and MR = $9, in order to maximize profits (or minimize losses), this firm should:
a) reduce output.
b) increase output.
c) shut down.
d) do nothing; the firm is already maximizing profits.
2. Zoe's Bakery operates in a perfectly competitive industry. The variable costs at Zoe's Bakery increase, so all of the cost curves (with the exception of fixed cost) shift leftward. The demand for Zoe's pastries does not change, nor does the firm shut down. To maximize profits after the variable cost increases, Zoe's Bakery will ________ its price and ________ its level of production.
a) raise; increase
b) decrease; increase
c) raise; decrease
d) do nothing to; decrease
3. The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, the marginal cost is $30, and the average variable cost is $30. Our firm should:
a) raise the price of guidebooks, because the firm is losing money.
b) keep output the same, because the firm is producing at minimum average variable cost.
c) shut down because the firm is losing money.
d) produce more guidebooks, because the next guidebook produced increases profit by $5.
